"Occupied" means that a place is being used. For example, when there are people already using a shared meeting room at an office, the room "is occupied":
It looks like this room is occupied, so why don't we try the one at the other end of the hall.
Some things that you can describe as "occupied" include:
- a bathroom stall
- a hotel room
- a taxi
"Occupied" is slightly formal. A less formal way to express the same idea is:
Someone's in here!
Someone's using it.